Business Article - Mary Holz-Clause, Co-director, AgMRC, Iowa State University
Updates to www.AgMRC.org
How do I use this site?
Business Profile - Gold Medal Flour
New Research - Guaranteed Tender Beef: Opportunities and Challenges for a Differentiated Agricultural Product
AgMRC Highlight - Hunting Leases
Upcoming Events
The AgMRC Action is the official monthly publication of the Agricultural Marketing Resource Center - your source for value-added ag information. The AgMRC is a dynamic collaboration of university research and outreach specialists focused on collecting and interpreting information and creating new research to support value-added agricultural activities. All information contained in this newsletter can be found on the site, www.agmrc.org.
This newsletter features new updates, information and resources available at the Agricultural Marketing Resource Center (AgMRC) to assist producers, service providers, rural development specialists and others with value-added agriculture resources. AgMRC was formed as a national virtual resource center for value-added agricultural groups. AgMRC exists to provide producers and processors with critical information in a one-stop-shop to build successful value-added agricultural enterprises.
The Center's Web site, www.AgMRC.org, contains information on various commodities and products, including many market niches farmers can pursue. There is also information on how to start a business and selecting a business structure. Other topics include how to write feasibility, marketing and business plans.
The site contains links and AgMRC-developed pieces on everything from networks of ethanol cooperatives to organic beef producers to a value-added worm business. Directories list value-added consultants, value-added agriculture businesses and applicable laws specific to each state.
I encourage you to visit the AgMRC web site at www.agmrc.org and take a few minutes to learn some new facts about a commodity, do some research on developing a food business plan or see what is happening in your individual state.
Please let us know your thoughts and suggestions for the newsletter. The center's email is agmrc@iastate.edu or call us toll-free at 866-277-5567.
Sincerely,
Christa Hartsook,
Communications specialist, AgMRC
By Mary Holz-Clause, Co-director, AgMRC, Iowa State University
Originally published in Economic Development America, Summer 2004
How can we stoke the fire of economic development in rural areas? How can we take advantage of the passion and entrepreneurial spirit that built rural America? Value-added agriculture can be a key component of rural economic development, fostering job growth, economic vitality and local wealth creation. Most rural communities have a strong agricultural production component that has historically contributed to the local economy. Value-added agriculture includes efforts to increase the value of these commodities and to do so before they exit the local area.
Value-added agriculture capitalizes on the consumer shift from mass markets to a market of mass niches, where goods and products are tailored for specific needs. Although use of the term 'value-added agriculture' varies, an accepted version defines it as the process of converting agriculture outputs into products of greater value; increasing the economic value of an agricultural commodity through changes in genetics, processing or diversification; or the process of increasing the consumer appeal of an agricultural commodity.
Today we see a huge variety of market-driven ideas emerging that are either triggered by or nurtured by small, passionate groups at the local level. These local groups may include farmers, local businesses and leaders who have a common interest in the vitality of an area. Many of these stakeholders are developing businesses that contribute different attributes to the food, fiber and energy industries and that provide customers with new products and services.
Finding the market is important, but getting products to that market -- and making a profit -- is how this successful value-added agriculture initiatives move from a dream to reality. Often, the goal is to retain control of commodities through further processing and to gain more direct access to markets. The opportunity for success is primarily about using that control to change the market value of what local producers have to sell.
The essence of value-added agriculture is about changing the vision for agriculture and rural America. Technology plays a role, markets are key and all ventures take money, but it is ultimately about people developing a new vision for agriculture and their communities. In the end, it is great leadership and great 'followership' that makes the difference for successful ventures. Value-added agriculture is a great motor for building that community wealth measure of "social capital." When these deals work, they make the greatest examples of the whole exceeding the sum of its parts.
But like many things, this movement is more evolutionary than revolutionary. Participants are learning and adjusting their efforts as they observe the successes and failures of others. Programs and expert assistance are evolving, too. Confidence and the willingness to take risks remain vital components in tapping the power of cooperation and common goals.
And for inspiration, there are significant successes, a few of which are detailed below.
Ethanol production, from corn, grain sorghum or other bio-stock, is a recent and significant farmer-owned, value-added agriculture business sector. Over 10 percent of the U.S. corn crop is used in ethanol production. More than 30 percent of the gasoline in the United States is blended with ethanol -- typically at 10 percent -- to produce a fuel that emits less air pollution and helps lessen U.S. dependence on foreign oil. Thousands of farmers have invested in ethanol plants, profiting from the plants' proceeds as well as ensuring a reliable market for their crops.
At the end of 2003, 32 of the 72 ethanol plants across the U.S. were farmer-owned. Taken as a whole, farmer-owned ethanol plants represent the single largest source of ethanol, comprising 40 percent of U.S. production. Iowa has 12 producer-owned ethanol plants; South Dakota has 11 and Minnesota has 14.
Cattle producers in Kansas and surrounding states formed a cooperative in 1996 called U. S. Premium Beef (USPB). USPB is an integrated system in which farmers and ranchers receive information about the cattle supplied to USPB and have partial ownership in the processing. By producer and processor working together, producers can make changes to their cattle production if needed; consumers receive the product they asked for; and producers are able to participate in the profits. Today, less than 10 years later, USPB is the fourth largest beef processing entity in the United States, in a field of big competitive giants which includes Tyson, Cargill and Con Agra.
Despite the stories above, value-added agriculture is not a guaranteed success strategy. The same keys to success that apply to all businesses apply to value-added agricultural ventures: good management and a good governance structure, a solid marketing plan, a plan for protecting a market once it is created (e.g. trademarketing) and a strategy for growing the marketplace for the product. Anyone who gets involved in value-added business development - whether producers, economic developers, investors, bankers or professional consultants - need to recognize that these enterprises often take more time, energy, emotion and money to get going than originally thought.
And it may be easy to overlook the impact of value-added agricultural startups. The direct job creation may be small, or the physical plant may not be large and impressive. But the activity is there, generated by and in the local community, where the dollars start and where the dollars spend much time. Community leaders benefit from acknowledging the possibilities of these new enterprises because of their potential to build on themselves.
Sometimes, the key to success is in linking production to processing or marketing in unique ways or with unique products. Sometimes the nuance is in the process itself, by creating better food safety or "story" attributes for customers. Sometimes value is found through providing services, or through marketplace relationships. Regardless of how value is added to agricultural products, local stakeholders who think creatively usually are surprised to find more possibilities available than first imagined.
A business profile on Liberty Hills farm was added. This Vermont dairy operation turned to agritourism to provide a farm experience for children and families.
Updated or created profiles for beverage milk, bison, branded beef, canola, cheese, commodity dairy, dairy profiles, direct market beef, eggs, elk, floriculture, hard red wheat, hunting leases, industrial hemp, mushrooms, mustard, natural beef, organic soy, prairie grasses, rapeseed, sorghum and sunflowers.
New links were added for agritourism, aquaculture, beverage milk, biodiesel, bison, branded beef, commodity lamb, direct market beef, eggs, elk, ethanol, floriculture, goats, herbs, hunting leases, industrial hemp, natural beef, mushrooms, organic beef, organic dairy, organic lamb, organic pork, organic soy, prairie grasses, sweet potatoes, switchgrass, turkey and worms.
The aquaculture fin fish section was separated into individual fish entities with individual profiles and links added.
Two different agritourism publications were added to the site. They include:
- A Primer on Agritourism and Ecotourism Startups and Management, Small Farm Center, University of California – Davis. This for-purchase publication contains material to use to assess whether to seriously consider entry into or expansion of an agri or nature tourism operation.
- Agritourism and Nature Tourism in California, Small Farm Center, University of California – Davis. This for-purchase publication is written to help farmers and ranchers determine their tourism potential and outline the steps of establishing a tourism enterprise.
Ethanol in California: a Feasibility Framework - developed in May 2004, was added to the enthanol and grain sorghum sections. An analysis of what it would take to develop a local ethanol supply based on food processing waste from California's multi-billion dollar agricultural industry. The study was funded by a USDA Rural Development Rural Business Enterprise Grant administered by the Great Valley Center.
Specific information can be found at http://www.agmrc.org/ag/ag.html.
Updated sections in markets and industries include energy sections on industry structure and market trends and food sections on industry structure, market trends, understanding markets.
“U.S. Fresh Produce Market Trends,” was added from the Agricultural Issues Center, University of California.
The markets and industries section can be found at http://www.agmrc.org/markets/markets.html.
Updated the state pages of Michigan, Ohio, Pennsylvania, South Carolina, Tennessee, Texas and Washington.
The directories and state resources section can be found at http://www.agmrc.org/directories/dir.html.
The information on www.agmrc.org is divided into different areas of an agricultural business.
>>To find information on a specific ag commodity in which you have interest, click on Commodities and Products. Different niches for each commodity will be under the main headings of each.
>>To find information on market trends, such as the organic industry or food consumption statistics, as well as broad industry structure information, click on Markets and Industries.
>>To find “how-to” information to develop or expand your ag business, click on Business Development.
>>Specific consultants, state contacts and laws and value-added businesses can be found in the Directories and State Resources section.
>>Upcoming value-added ag events are located in the Upcoming Events calendar.
Hard White Wheat and Gold Medal Flour: General Mills Contracting Program
On a scorching, 105 degrees Fahrenheit, July afternoon in downtown Great Falls, Montana, Tom Willis sighs as he hangs up his telephone for the 30th time today. Although air conditioning keeps his office a comfortable 700 during this record setting heat wave, he has remained uncomfortably warm because of the constant pressure resulting from a newspaper article. Earlier this week, the (Kansas) Wichita Eagle reported: “The stuff in the bag labeled Gold Medal Flour is changing. Tom Willis, a product development specialist with General Mills Inc., said steps are under way to produce the Gold Medal product from hard white wheat. We have started the process,” Willis said. “I wouldn't say that the change is enough a consumer would notice today, but definitely, over time, there will be a change.”
“Switching to white wheat is advantageous to millers because more of the wheat kernel can be used. With red wheat, when you get too close to the bran, you get specks in the flour, and consumers tend not to like that,” said Ted Lomas, who manages the white wheat program for the Right Co-op in Wright. “With white wheat, the bran is also white, so you don't get specks. And bread made from white wheat flour tends to have a sweeter flavor.”
This somewhat startling change in direction generated a flurry of inquiry from a wide range of interested parties. Tom has been kept busy responding to a variety of issues and assuring customers and producers that the trademarked flagship product, Gold Medal Flour, has not been changed. Rather, a switch to a better input with improved functionality was being made.
In many respects, this flurry of activity has provided Tom with a chance to solidify the strategic directions anticipated by General Mills for the next decade with regard to its grain procurement program and flour milling business. Specifically, General Mills needs to capture enough value from the functionality of certain hard white wheat varieties to justify the additional cost of creating and managing a contracting program for those varieties.
Wheat is classified into six classes based on different genetic characteristics. Recognized classes include Hard Red Winter, Hard Red Spring, Soft White, Soft Red, Durum, and Hard White. Red and white refer to kernel color, winter and spring to the time of planting, and hardness to kernel texture and other inherent functional characteristics. Hard red winter wheat is produced in the Central Plains, while hard red spring wheat is produced in the North Central Plains. Hard white wheat is primarily produced in Kansas, Nebraska, Colorado, Idaho, and Montana.
Hard white wheat is a close substitute for hard red wheat as both have similar intrinsic characteristics. Both classes are used in bread making because of their high protein levels (12 to 14 percent). The main difference between the two classes is the color of their respective kernel coats. This color difference impacts the use of each wheat class in food products such as Asian noodles and steam breads. In addition, hard white wheat does not have the tannins found in red wheat bran that cause a slightly bitter flavor in whole-wheat foods. Some domestic millers prefer hard white wheat because of the functionality of specific varieties. Functionality refers to the milling and baking qualities of a variety. Domestic millers usually mill wheat to meet flour ash or mineral content specifications. Conversely, foreign millers often mill wheat to meet certain flour color specifications. In the case of hard white wheat, several varieties allow for higher extraction rates when millers try to meet ash content specifications.
For more information, visit http://www.agmrc.org/wheat/wheatpage.html.
Participants in the beef supply chain have, at best, imperfect information about some quality attributes of the product (e.g., live animals, carcasses, or cuts) they are buying, handling, and/or processing and selling to their downstream customers. In many cases, the quality of the final product, the destination, and/or appropriate handling or processing of the input is contingent on these unobservable quality attributes. Assessing the quality of an input is particularly important for firms that want to move into niche markets by differentiating their products with some search, experience, or credence attribute. The success or failure of these ventures is often dependent on whether the selling firm is seen as dependable and trustworthy by their customers. Managers at different links in the supply chain can choose to implement some sort of quality assurance system as a way to attempt to learn some relevant aspect about those attributes and provide quality certification to buyers. Better quality assessment and certification systems are likely to be imposed if consumers value the attributes considered. Assurance can potentially come from a system run by producer alliances, from reliance on certification by a private or public third party, or both. Lawrence (2002) and Carriquiry, Babcock, and Carbone (2003) describe some systems currently used by the beef sector in Australia, New Zealand, and the United States.
Important economic factors affecting the precision that decisionmakers will choose to use to assure quality in their supply chains include the market structure, the discoverability of product quality by downstream chain participants, and the nature of reputations.
Meat and animal scientists have dedicated much effort to finding objective measurements for inferring the palatability and acceptability of beef by consumers in order to certify quality on a commercial scale (or to provide cues to consumers willing to pay premiums for better beef). Given that tenderness, an experience attribute, has been shown to be the most important trait affecting beef acceptability, much of the work has been devoted to objectively measuring it and to identifying thresholds (for the measurements) that can be used to sort beef into guaranteed tender and non-certifiable beef. Identification of those thresholds, however, has proved elusive. The objective of this paper is to provide a summary and analysis of the literature on beef tenderness assessment and its use for classifying beef according to quality.
Opportunities afforded by product quality differentiation are explored, and insights on the challenges for designing a classification system are provided. These challenges have led to the proposal of vastly different thresholds by different authors. The main problem identified by a review of the literature is a lack of clear objectives in defining appropriate thresholds. Optimal thresholds are contingent on the objective the producer wants to achieve and/or the environment. What is best for a given objective (e.g., minimization of errors in classification) may miss the target grossly under another objective (e.g., profit maximization). The literature also makes clear that different thresholds will, under consumer heterogeneity and imperfect testing technologies, result in different magnitudes of type I (denial of certification to a tender cut) and type II (certification of a non-tender cut) statistical errors. The relative importance of each type of error must be assessed and an explicit objective stated before any economically meaningful threshold is proposed.
Written by Miguel Carriquiry of the Center for Agricultural and Rural Development (CARD) at ISU. To read the full paper, visit www.agmrc.org.
There are few hunting, conservation, or land-use issues as controversial as the ongoing trend toward "lease hunting." This is not a new concept. Hunting leases have been a common practice in some states for over half a century. For the landowner, farmers and ranchers, hunting leases are a means by which to generate additional income from wildlife resources that the landowners sustain through their crops and habitat maintenance. For the sportsperson, the growing number and prevalence of lease arrangements are an indication of diminishing public access opportunities and "highest-bidder" price wars that could exclude access to a lot of private land. Additionally, thriving game populations of many species rely on hunting to maintain their populations within the biological carrying capacity of the habitat. Also, big-game lease-hunting tends to target trophy animals, requiring "cull" hunts or similar strategies for population control and removal of less desirable animals.
Sportsperson interest groups have always stressed good hunter-landowner relations as a means to continue to have public access to private lands. However, most landowners realize that some sort of fee-based hunting allows them to utilize a wildlife resource that they invest resources into through their agricultural operation. Funds from lease or fee hunting can be used to supplement the farm or ranch's income or providing cash that can be used for general habitat improvement (planting wind breaks, shelter belts or food plots; or providing water resources or feeders). Land, wetland and stream habitats and wildlife resources are increasingly valuable as hunters become more willing to pay for access to trophy animals, exotic species, maintained numbers of stocked birds, or a more exclusive or quality outdoor experience.
In some states, public access hunting land is almost nonexistent. For instance, in Texas, 80 percent of the total acres in many counties are leased. A study by the U.S. Fish & Wildlife Service found that the money spent by hunters to lease land doubled from 1989 to 2000 to reach $625 million, a continuing trend. In 2001, 982,000 hunters spent an average of $635 each on leases. Another 919,000 hunters spent an average of $403 for daily or seasonal access to private land. In the West, these daily or seasonal use fees are referred to as "trespass fees." The trespass fee has long been a common practice in the Western states for elk, antelope and mule deer hunting. These informal arrangements often allow hunters onto private land for a day- or one-time-use access fee. These "cash-'n'-carry" deals are far inferior to a formal lease agreement, and may have serious implications with respect to potential liability, declarable income and other legal issues.
Formal lease agreements may take many forms, seasonal, year-round and by the day or week. The agreement may be tailored to individuals or a party of hunters. Revenue usually is directly related to the quality of the habitat, species availability and the overall quality of the outdoor experience. Some landowners have learned that fee-hunting or reserve-hunting operations are secondary profit centers that can be developed to provide substantial income. There are many examples of fee-hunting situations that have evolved into services that involve lodging, guide services, on-site transportation and game care, as well as non-hunting eco-tourism activities that may include clay-bird shooting weekends, dog field trials, or family retreats. In parts of the South and southern Midwest, a lease may simply be a contract for a day of traditional dove shooting that includes limited guiding, lunch and game cleaning. In all of these situations, some sort of contract that specifies user behavior and liability issues should be employed.
For more information on hunting leases and other agritourism opportunities, visit http://www.agmrc.org/agritourism/huntinglease.html.